BNZ Pays Penalty After Interest Calculation Error Shortchanged Thousands of Customers

Key Takeaways

• A Decade-Long Discrepancy: BNZ stated that interest would be calculated daily but used a lowest-monthly-balance methodology on certain non-profit accounts between 2014 and 2024.
• More Than 23,000 Customers Affected: The issue impacted 23,103 customers and resulted in approximately $3.24 million (NZ$5.39 million) in underpaid interest.
• Remediation Exceeded Underpayments: BNZ paid approximately $3.27 million (NZ$5.44 million) to affected customers, including use-of-money interest.
• Regulatory Action Focused on Misleading Representations: The FMA's enforcement action centered on the mismatch between BNZ's customer communications and its actual interest calculation practices.

Deep Dive

The Bank of New Zealand has admitted misleading customers about how interest was calculated on certain non-profit accounts and agreed to pay approximately $1.56 million (NZ$2.6 million) to the Crown through an enforceable undertaking with New Zealand's Financial Markets Authority.

The issue traces back to 2014, when BNZ updated its terms and conditions to state that interest on the affected accounts would be calculated daily. The bank's systems did something else. For non-profit accounts, interest was calculated using the lowest balance recorded during the month. The difference sounds technical. It was not inconsequential.

Between December 2014 and February 2024, customers received less interest than the bank's own documentation said they would.

By the time BNZ identified the problem, 23,103 customers had been affected. The bank calculated that approximately $3.24 million (NZ$5.39 million) in interest had been underpaid. It ultimately paid approximately $3.27 million (NZ$5.44 million) in remediation, including use-of-money interest.

What makes the case notable is not the size of the remediation bill. Large banks periodically discover operational errors and compensate customers. Regulators see those cases regularly. What drew the FMA's attention was the gap between what customers were told and what actually happened.

BNZ admitted that statements contained in its terms and conditions and customer communications misrepresented how interest would be calculated. Those representations breached provisions of the Financial Markets Conduct Act that prohibit false or misleading conduct.

"Financial institutions must ensure their terms and customer communications are accurate and reflect how products work in practice," said Margot Gatland, the FMA's Head of Enforcement. "In this case, BNZ's representations about how interest was calculated were inconsistent with the actual approach taken, leading to customer harm."

The regulator acknowledged that BNZ self-reported the issue after discovering it and cooperated throughout the investigation. The bank has since updated its terms and conditions, stopped offering the affected accounts, and moved customers to replacement products. The accounts were withdrawn in February 2025.

That cooperation likely helped shape the outcome. The enforceable undertaking resolves the matter without court proceedings while securing commitments from the bank to strengthen its internal controls.

Those commitments extend beyond fixing the specific issue. BNZ has agreed to develop and maintain policies, processes, systems, and controls intended to support good customer outcomes and prevent similar failures from recurring.

New Zealand's Conduct of Financial Institutions regime, known as CoFI, has shifted regulatory attention toward the everyday mechanics of customer treatment. The focus is no longer confined to whether products are lawful or disclosures exist. Regulators increasingly want evidence that institutions can demonstrate their products operate in the way customers have been told they operate.

That sounds obvious. Cases like this show it often isn't. The underlying error survived multiple years, multiple customer statements, and multiple rounds of operational and compliance oversight before being uncovered by a customer inquiry. The lesson is less about interest calculations than about organizational blind spots. Documents, systems, and customer communications can drift apart over time. When they do, the discrepancy tends to remain invisible until someone asks a question simple enough to expose it.

In BNZ's case, that question ultimately led to millions of dollars in remediation, a regulatory penalty, and a public admission that the bank's words and its practices had diverged for nearly ten years.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.